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In recent months there has been a lot of incorrect speculation
that because Iran has been shut off from the petrodollar,
SWIFT-mediated regime, its economy will implode as the country
has no access to the all important greenback and can thus not
conduct international trade - the driving factor behind the
international sanctions that seek to topple the local government
as Iran dies an economic death.

And while there have been bouts of substantial inflation, which
so far the local government appears to have managed to put a lid
on by curbing gray market speculation, Iran continues to more or
less operate on its merry ways with international trade most
certainly taking place, especially with China, Russia and India
as main trading partners.

"How is this possible" those who support the Western-led embargo
of all Iranian trade will ask?

Simple – gold. Because while Iran may have no access to
dollars, it has ample access to gold.

This in itself is not new - we have reported in the past that
Iran has imported substantial amounts of gold from Turkey,
despite the Turkish government's stern denials. Today, courtesy
of Reuters, we learn precisely what the 21st
century equivalent of the Great Silk Road looks like, and just
how effective Iran has been as a lab rat in escaping the great
petrodollar experiment, from which conventional wisdom tells us
there is no escape. Presenting: petrogold.

It all starts, contrary to the government's official denials, in
Turkey.
Reuters explains:

Couriers carrying millions of dollars worth of gold bullion in
their luggage have been flying from Istanbul to Dubai, where the
gold is shipped on to Iran, according to industry sources with
knowledge of the business.

The sums involved are enormous. Official Turkish trade data
suggests nearly $2 billion worth of gold was sent to Dubai on
behalf of Iranian buyers in August. The shipments help Tehran
manage its finances in the face of Western financial sanctions.

The sanctions, imposed over Iran's disputed nuclear program, have
largely frozen it out of the global banking system, making it
hard for it to conduct international money transfers. By
using physical gold, Iran can continue to move its wealth across
borders.

So.... gold is money? In other words, it is widely accepted, it
is a store of wealth, and it is a medium of exchange? Huh.
Someone tell the Chairman. He may be unaware. Apparently so, at
least for countries that don't live day to day on the edge of $1
quadrillion in derivative based weapons of immediate and mass
destruction.

"Every currency in the world has an identity, but gold
means value without identity. The value is absolute wherever you
go,"said a trader in Dubai with knowledge of
the gold trade between Turkey and Iran.

The identity of the ultimate destination of the gold in Iran is
not known. But the scale of the operation through Dubai and its
sudden growth suggest the Iranian government plays a role.

The Dubai trader and other sources familiar with the business
spoke to Reuters on condition of anonymity, because of the
political and commercial sensitivity of the matter.

What does Turkey get in exchange? Whatever Iran has that Turkey
needs of course.

Iran sells oil and gas to Turkey, with payments made to state
Iranian institutions. U.S. and European banking sanctions ban
payments in U.S. dollars or euros so Iran gets paid in Turkish
lira. Lira are of limited value for buying goods on international
markets but ideal for a gold buying spree in Turkey.

And so, in a world in which avoiding the USD is considered lunacy
by most, Turkey and Iran, quietly and effectively, have created
their own loophole, in which natural resources are exchange for a
local currency, which is then exchanged for gold, which then is
used to purchase anything and everything that Iran needs from all
those other countries that do not comply with the US and
European-led embargo. Such as virtually every nation in Africa.
Because gold talks, and petrodollars increasingly walk.

What is disturbing, is that Dubai is now joining in the party
too, and the three way transaction may soon become the template
for all other countries which are not afraid to suffer the
embargo wrath of Uncle Sam:

In March this year, as the banking sanctions began to bite,
Tehran sharply increased its purchases of gold bullion from
Turkey, according to the Turkish government's trade data.

Direct gold exports to Iran from Turkey, long a major consumer
and stockpiler of gold, hit $1.8 billion in July - equivalent to
over a fifth of Turkey's entire trade deficit in that
month.

In August, however, a sudden plunge in Turkey's direct gold
exports to Iran coincided with a leap in its sales of the
precious metal to the UAE.

Turkey exported a total $2.3 billion worth of gold in August, of
which $2.1 billion was gold bullion. Just over $1.9 billion,
about 36 metric tons, was sent to the UAE, latest available data
from Turkey's Statistics Office shows. In July Turkey exported
only $7 million of gold to the UAE.

At the same time Turkey's direct gold exports to Iran, which had
been fluctuating between $1.2 billion and about $1.8 billion each
month since April, slumped to just $180 million in August.

The Dubai-based trader said that from August, direct
shipments to Iran were largely replaced by indirect ones through
Dubai, apparently because Tehran wanted to avoid
publicity.

"The trade from Turkey directly to Iran has stopped
because there was just too much publicity around it," said the
trader.

Dealers, jewellers and analysts in Dubai said they had not
noticed any large, sudden increase of supply in the local gold
market during August. They said that suggested the
increased shipments to the UAE were sent straight on to
Iran.

It is not clear how the gold is moved from Dubai to Iran, but
there is substantial trade between the two economies, much of it
conducted by wooden dhows and other ships crossing the Gulf, a
distance of only about 150 kilometers (100 miles) at its
narrowest point.

A trader in Turkey said Tehran had shifted to indirect imports
because the direct shipments were widely reported in Turkish and
international media earlier this year. "Now on paper it looks
like the gold is going to Dubai, not to Iran," he said.

So what happens if the US demands that Dubai halt trading with
Iran? Nothing much: another country will pop up to replace its
place in the golden triangle, and then another, and then another.
After all, they are intervening on very lucrative terms: the
bid/ask in the transaction. Precisely the same reason bank flow
desks keep the bond and stock market flowing day to day.

What would happen if Turkey itself sours?

The buyers may also want to make their purchases less vulnerable
to any possible interference by Turkey's government. Turkey's
close relationship with Iran has begun to sour as the two states
find themselves on opposite sides of the civil war in Syria, with
Turkey advocating the departure of President Bashar al-Assad and Iran remaining
Assad's staunchest regional ally.

So more of the same: Iran would simply find a regional country
that needs crude - many, many of them around - and offer to trade
crude for gold, which would keep the mini petrogold cycle afloat.

Yet the biggest irony is that despite all the overt animosity
between Iran and Turkey, by way of Syria, the two nations
continue to transact, making one wonder just how credible are all
those reports of middle eastern animosity between this country
and that, or that ethnic faction and this. Not surprising: gold
overcomes all differences. All of them.

Finally, the reality is that nobody is actually breaking any
rules.

There is no suggestion that the gold trade means Dubai is
violating international sanctions against Iran. United Nations
sanctions ban shipments of nuclear-related materials to Iran and
freeze the assets of some Iranian individuals and companies, but
they do not prohibit most forms of trade. The UAE has not yet
released its trade data for August. Officials at the Dubai
customs authority could not be reached for comment despite
repeated attempts to contact them.

Turkish trade data confirms the gold is being transported to
Dubai by air. According to the data, $1.45 billion of Turkey's
total gold exports in August were shipped through the customs
office at Ataturk airport's passenger lounge. Almost all of the
rest, $800 million, were shipped from Istanbul's smaller Sabiha
Gokcen airport. Turkey's total exports of all goods to
the UAE totaled $2.2 billion in August. Of that amount, $1.19
billion were registered at the Ataturk passenger lounge, while
$776 million were registered at Sabiha Gokcen.

A customs broker who does business at Ataturk said couriers were
boarding Turkish Airlines and Emirates flights to Dubai at the
airport, carrying the metal in their hand luggage to avoid the
risk of it getting lost or stolen.

The maximum amount of gold bullion which a passenger is allowed
to take is 50 kilograms (110 pounds), he said. This suggests that
during the month of August, as many as several hundred courier
trips may have taken gold to Dubai on Iran's behalf.

"It is all legal, they declare it, they give their tax
number and it is all registered so there is nothing illegal about
this," the broker said. "At the moment there's quite a lot of
traffic to Dubai. During September and October we have also been
seeing this."

The trade data shows almost $1.4 billion worth of Turkey's August
exports to the UAE came from a company or companies with a tax
number registered in the coastal city of Izmir, Turkey's third
biggest. Customs officials at Ataturk declined a Reuters request
to provide documents identifying the exporters, saying the
information was confidential.

The identity of the companies handling the business could not be
confirmed. Traders said that because of the risk of attracting
unwelcome attention from U.S. authorities, only a few companies
were likely to be willing to get involved.

And there you have it: a perfectly counterparty free system, in
which a transaction is done, and no traces are left behind.

More importantly, this is the blueprint for the future, as more
and more countries evade the subjugation of the petrodollar
regime so ubiquitous for the past century, and which is slowly
but surely being shifted to benefit those countries who are not
insolvent, and who actually produce things needed by the rest of
the world.